Wednesday, April 14, 2010

The Globe & Mail had an article on the salaries of the top Canadian charities. I've done research and consulting work for the nonprofit sector on and off for 10 years now. Executive compensation is often a sticky wicket. Some argue that there should be no limits on executive nonprofit compensation, but the reality of the situation is that charitable nonprofits have to manage their reputations in the eyes of donors. What I feel needs to happen is a balance between the mentality that compensation enables the hiring of the "best" talent versus one that's more about an organization's mission, values, and culture.

Moneysense examined Canadian charities in terms of the percentage of revenues spent on administration, fundraising, and management. While I'm in favour of increased transparency of nonprofit finances, which can be integrated into normal accounting workflows, I also think there needs to be more knowledge disseminated on what these types of numbers mean for different types of organizations and what types of activities they are engaged in.

I think nonprofits can learn from the story of Rough Trade Records. The UK company was an odd duck, in that the culture was that of a socialist organization. Initially, there was no differentiation in pay and the focus was on its core value—the music. In the early, heady days of Rough Trade, it worked well enough. Success changed all of that. As the firm grew, it morphed into an organization with departments...and differential pay. The new "capitalist" structure wasn't the answer either, as it was bureaucratic and unwieldy. Here's an excerpt of a BBC4 programme on the history of Rough Trade::

While an organization without differential pay isn't going to work, what's of interest here is the values and culture of an organization. When an organization grows and shifts towards an increasingly bureaucratic and corporate form, it needs to define its identity and manage its reputation with respect to stakeholders. So, while there may not be any steadfast rules for executive compensation, organizations should factor this in and embrace transparency. If what matters is the "best" talent for running the organization and a willingness to use compensation as a lever to attract said talent, those decisions need to be made in those terms.

Twitterversion:: Blogpost:: The Market & Nonprofit Salaries :: What Philanthropic Organizations Can Learn from the Old Days of Rough Trade Records @Prof_K